Once an SME has measured its Scope 1 and Scope 2 emissions, an uncomfortable question often follows:
What about Scope 3?
Scope 1 covers emissions from sources a company directly owns or controls, such as natural gas combustion or company vehicles. Scope 2 generally covers emissions associated with purchased electricity.
Scope 3 is different. It looks beyond the company’s immediate operations to emissions associated with its broader value chain.
That can include purchased materials, transportation, business travel, employee commuting, waste, leased assets and even the use and eventual disposal of products sold.
For an SME, this can quickly become complicated.
So, does every company need to immediately calculate all of its Scope 3 emissions?
Not necessarily.
A practical approach is to first understand why the information is needed.
A major customer may be requesting emissions information from its suppliers. A lender may be asking sustainability-related questions. The company may be pursuing customers in markets where carbon information is becoming increasingly important. Or management may simply want a better understanding of the environmental impact of its supply chain.
Whatever the reason, the next step should be to identify which Scope 3 categories are likely to be material to the business.
A manufacturer purchasing significant quantities of steel, asphalt, chemicals or other carbon-intensive materials, for example, may find that purchased goods represent a much larger carbon impact than electricity used in its offices.
That doesn’t mean every supplier needs to provide perfect emissions data on Day One.
Where supplier-specific information isn’t available, companies can begin with purchasing records, quantities, transportation data and recognized emission factors to develop reasonable estimates. The quality of those estimates can then improve as better supplier information becomes available.
From a CFO perspective, this should sound familiar.
Financial forecasting often begins with the best information available, documents the assumptions and improves as better data becomes available.
Carbon accounting can follow much the same discipline.
For an SME, the objective shouldn’t be to calculate everything simply because it can be calculated.
Start with what matters. Understand what customers and other stakeholders are asking for. Identify the largest exposures. Improve the data over time.
Scope 3 doesn’t have to begin as a massive reporting exercise. It can begin as a better understanding of your supply chain.
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